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Crypto Wash Trading

Author

Listed:
  • Lin William Cong
  • Xi Li
  • Ke Tang
  • Yang Yang

Abstract

We introduce systematic tests exploiting robust statistical and behavioral patterns in trading to detect fake transactions on 29 cryptocurrency exchanges. Regulated exchanges feature patterns consistently observed in financial markets and nature; abnormal first-significant-digit distributions, size rounding, and transaction tail distributions on unregulated exchanges reveal rampant manipulations unlikely driven by strategy or exchange heterogeneity. We quantify the wash trading on each unregulated exchange, which averaged over 70% of the reported volume. We further document how these fabricated volumes (trillions of dollars annually) improve exchange ranking, temporarily distort prices, and relate to exchange characteristics (e.g., age and userbase), market conditions, and regulation.

Suggested Citation

  • Lin William Cong & Xi Li & Ke Tang & Yang Yang, 2022. "Crypto Wash Trading," NBER Working Papers 30783, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30783
    Note: AP CF PR
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    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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